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United States v. Jim

United States Court of Appeals, Eleventh Circuit

June 4, 2018

UNITED STATES OF AMERICA, Plaintiff - Appellee,
v.
SALLY JIM, Defendant-Appellant, MICCOSUKEE TRIBE OF INDIANS OF FLORIDA, Intervenor - Appellant.

          Appeals from the United States District Court for the Southern District of Florida D.C. Docket No. 1:14-cv-22441-CMA

          Before TJOFLAT and JORDAN, Circuit Judges, and STEELE, District Judge. [*]

          TJOFLAT, CIRCUIT JUDGE

         In 1988, Congress enacted the Indian Gaming Revenue Act ("IGRA"), Pub. L. No. 100-497, 102 Stat. 2467 (1988) (codified at 25 U.S.C. § 2701 et seq.), "to protect the Indian gaming industry from corruption and to provide for extensive federal oversight of all but the most rudimentary forms of Indian gaming, " Tamiami Partners, Ltd. By & Through Tamiami Dev. Corp. v. Miccosukee Tribe of Indians of Fla., 63 F.3d 1030, 1033 (11th Cir. 1995). IGRA permits an Indian tribe to engage in gaming and to distribute the revenue from gaming activities to its members on a per capita basis-that is, an equal payment to each member. 25 U.S.C. § 2710(b)(1), (b)(3). When an Indian tribe decides to distribute the revenue from gaming activities, however, the distributions are subject to federal taxation. Id. § 2710(b)(3)(D). The Indian tribe, as a consequence, must report the distributions, notify its members of their tax liability, and withhold the taxes due on them. Id. § 2710(b)(3)(D); 26 U.S.C. §§ 3402(r)(1), 6041(a).

         In the case before us, an Indian tribe engaged in gaming activities. Each quarter, the tribe used the revenue of the gaming activities to fund per capita distributions to its members. But the tribe disregarded its tax obligations on these distributions. It neither reported the distributions nor withheld taxes on them.

         In 2001, a member of the tribe received distributions on behalf of herself, her husband, and her two daughters. She neither filed a tax return for the 2001 tax year nor paid federal taxes on the distributions. The Government, after catching wind of the tribe's distribution program, assessed taxes, penalties, and interest against the member for the distributions. The member did not pay the assessments.

         As a result, the Government brought suit to reduce the tax assessments to a judgment in district court. The tribe moved to intervene as of right[1] because the case required a determination as to the taxability of the distributions, which could impair its distribution program and subject it to reporting and withholding requirements. Its motion was granted, and the tribe filed an answer and affirmative defenses.

         In the proceedings below, the member and the tribe raised as an affirmative defense that the distributions were exempt from taxation as "Indian general welfare benefit[s]" under the Tribal General Welfare Exclusion Act ("GWEA"), Pub. L. No. 113-168, 128 Stat. 1883 (2014) (codified at 26 U.S.C. § 139E). GWEA excludes from federal taxation "any payment made or services provided to or on behalf of a member of an Indian tribe . . . pursuant to an Indian tribal government program."[2] 26 U.S.C. § 139E(b). The Government moved for summary judgment on this defense. On summary judgment, the District Court determined that "the Tribal GWE Act was not meant to supplant the IGRA; that is, per capita distributions of gaming revenue remain taxable income, even if these distributions arguably promote the general welfare of a tribe."

         In this appeal, the member and the tribe contend that the District Court erred in concluding that the exemption for Indian general welfare benefits did not apply to the distributions.[3] The tribe alone asserts that the District Court erroneously upheld tax penalties against the member and incorrectly attributed to the member the distributions of her husband and daughters. Lastly, the tribe argues that the District Court erred by entering judgment against it as an intervenor.

         We affirm the ruling of the District Court in each of these matters. The distribution payments cannot qualify as Indian general welfare benefits under GWEA because Congress specifically subjected such distributions to federal taxation in IGRA. The member has waived any arguments as to penalties or the amount assessed against her, and the tribe lacks a legal interest in those issues. The District Court did not err in entering judgment against the tribe because the tribe intervened as of right and the Government sought to establish its obligation to withhold taxes on the distributions.

         I.

         A.

         In 1990, the Miccosukee Indian Tribe of Florida ("Tribe"), an Indian tribe recognized under the Indian Reorganization Act of 1934, Pub. L. No. 73-383, 48 Stat. 984 (1934), began to operate a gaming facility called Miccosukee Indian Bingo and Gaming ("MIBG") on its reservation lands in southern Florida.

         Since 1984, the Tribe has provided its members quarterly payments to help them live on the reservation without outside assistance.[4] To fund these distributions, the Tribe taxes the "gross sales" made on the reservation as well as the rents from land and oil leases. The Tribe collects this tax revenue in what it calls the "non-taxable distributable revenue" account ("NTDR"). Each quarter, the Tribe gathers and approves a distribution from the NTDR. It divides the NTDR's balance by the number of tribal members and then writes a check to each member for her proportional share.

         In 1995, when the Tribe began gaming activities, it imposed a "gross receipts tax" specifically on MIBG.[5] The Tribe also collects this gaming tax in the NTDR for distribution. In theory, therefore, the NTDR contains revenue from both gaming and non-gaming sources, all of which the Tribe distributes to its members. The reality is that the lion's share of the revenue for the distributions comes from MIBG. In the financial year ending on September 30, 2001, MIBG contributed $32, 103, 681 into the NTDR; the Tribe distributed $32, 268, 000 to its members that year. This means that $164, 319 originated from other sources. Similarly, in 2002, MIBG paid $37, 462, 023 into the NTDR; the Tribe distributed a total of $36, 335, 300 that year, leaving an excess of $1, 126, 723 in gaming revenue. As the numbers reveal, MIBG contributed the vast majority of the funds for distribution. Despite this fact, the Tribe neither reported the distributions nor withheld federal taxes on them.

         In 2001, Sally Jim, a member of the Tribe, received and cashed distribution checks on behalf of herself, her husband, and her two children.[6] The distributions totaled $272, 000, which amounted to $68, 000 per person. She also earned $25, 990 through her employment at the tribal healthcare center in that year. Sally Jim neither filed a tax return in 2001 nor paid federal taxes on the distributions.

         In September, 2004, because of Sally Jim's failure to file a tax return, the Government assessed taxes, penalties, and interest against her for the 2001 tax year. On December 31, 2012, after becoming aware of the distributions Sally Jim received from the Tribe, the Government assessed additional taxes, penalties, and interest against her. Sally Jim did not pay the assessments.

         B.

         On July 1, 2014, the Government sought to reduce the assessments to a judgment in the District Court. In its one-count complaint, the Government alleged that Sally Jim failed to pay taxes and penalties of $267, 237.18 for 2001.[7]The Tribe moved to intervene as of right under Federal Rule of Civil Procedure 24(a).[8] The District Court granted the motion after determining that a ruling could subject the Tribe to withholding and reporting requirements and affect its general welfare program.

         Sally Jim and the Tribe answered the complaint and raised affirmative defenses. They alleged that Sally Jim did not owe taxes on the distributions because they were exempt from taxation. Their principal argument was that the distributions qualified as "Indian general welfare benefit[s]" under GWEA and therefore could not be taxed.[9] 26 U.S.C. § 139E(a). In case this argument failed, Sally Jim alleged that the Government wrongly included the distributions of her household members in the assessment against her. She also alleged that she should not be subject to penalties because she relied "upon the advice of Tribal officials as well as the representatives of the Bureau of Indian Affairs."

          The Government moved the District Court for summary judgment, arguing that GWEA did not exempt the payments from taxation.[10] Specifically, the Government argued that GWEA is inapplicable to the distributions because Congress, through IGRA, specifically intended to tax distributions of gaming revenue. Sally Jim and the Tribe, in a joint response, countered that a dispute of material fact existed on whether the distributions met the requirements to qualify as Indian general welfare benefits under GWEA.

         The District Court granted summary judgment in part. It held that pursuant to IGRA the "per capita distributions of gaming revenue remain taxable income, even if these distributions arguably promote the general welfare of a tribe."[11] The District Court, however, denied summary judgment as to how much of the distributions came from sources other than gaming, which might render them eligible for an exemption as Indian general welfare benefits.

         With respect to the tax assessments against Sally Jim, the District Court concluded that a genuine dispute of material fact existed regarding the extent of Sally Jim's tax liability because some of the checks she received were "made out to her husband and her daughter." On tax penalties, the District Court held that Sally Jim had not demonstrated reasonable cause for failing to timely file her tax return as to her salary.[12] But the District Court denied summary judgment on whether Sally Jim was subject to penalties for failing to report and pay taxes on the tribal distributions because a dispute of material fact existed as to whether she reasonably relied on the advice of an attorney or statements made during tribal meetings.

         The parties consented to a bench trial, which took place August 11-16, 2016. In its opening statement and closing argument, the Government stressed that the distributions came solely from the gross receipts tax on MIBG, a gaming facility, and thus that GWEA could not apply to any portion of them. As to the amount of the tax assessments against Sally Jim, the Government contended that Sally Jim "had discretion" to spend the distributions the Tribe made to the members of her household and therefore that she must pay federal taxes on them. Lastly, the Government asserted that Sally Jim lacked reasonable cause for failing to pay taxes on the distributions because she never received advice from a tax expert.

         Sally Jim and the Tribe, in their opening statements and closing arguments, made no effort to establish how much of the distributions came from a source other than gaming activities.[13] They insisted that Sally Jim could not be liable for the full assessment amount and that she reasonably relied on the advice of tribal officials and Dexter Lehtinen, the Tribe's general counsel in 2001.

         After careful consideration of the evidence and arguments of the parties, the District Court set forth its findings of facts and conclusions of law in an order on August 19, 2016. The District Court reiterated that "the Tribe's distributions, derived from gaming proceeds, are not exempted from federal taxation as general welfare payments or income from the land." Because neither Sally Jim nor the Tribe "present[ed] any evidence identifying a specific percentage of the distributions derived from non-gaming sources, " the District Court held that "no exemption from taxation applies to the income at issue in this case." Moving to whether the Government correctly included the distributions of Sally Jim's household members in the assessment against her, the District Court held that she "exercised sufficient control over the full amount of tribal distributions she received" to be liable for taxes on them.[14] Lastly, the District Court addressed whether the Government could impose penalties on Sally Jim for failure to file a tax return and to pay taxes on ...


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